Debra BorchardtNevada-based ECGI Holdings Inc. (OTC: ECGI) also known as Elite Cannabis Group Incorporated is buying East West Pharma Group, Inc., a Wyoming corporation with specialized equipment and experienced personnel, including leaders in the cannabinoid extraction and product manufacturing space. ECGI announced last week that it had signed an LOI to acquire the company as part of its $2.7 billion strategy to enter the cannabis industry by buying distressed assets. ECGI did not disclose what it paid for the company and according to the company filings, it only had a cash balance of $131,849 at the end of May 2022.
Funds For Acquisition?
It’s difficult to know where ECGI is getting the money or assets to make the acquisition. In January the company told shareholders it was “once again current with our financial filings and our state with OTC Markets Group.” According to the latest quarterly filing ending 11/30/22, the company had zero revenue and a net loss of $116,000. Indeed, it hasn’t reported any revenue on any filings going back to 2019.
The company did have a share offering dated September 6, 2022 to raise $1.6 million. That offering statement warned investors as follows, “As of May 31, 2022, the company had assets totaling $4,637,134, liabilities totaling $8,348,331, and a working capital deficit of $7,389,535. The company does not have a history of generating revenue and has an accumulated deficit of $10,879,219 as of May 31, 2022. The funds raised in this Offering will be insufficient by themselves to allow for the continuation of the company as a going concern for the next 12 months.” In fact, the company is in default on a convertible note that goes back to 2015. The company has not updated shareholders on the offering and whether any money was raised and if so how much.
East West Deal
Despite the lack of transparency on where the money came from unless it was an all-stock deal, ECGI says it will get extraction equipment that was custom-built to process very large volumes of industrial hemp (up to 500 pounds per hour) and distill crude material through a high-volume liquid to liquid (L2L) process designed to generate optimal refined product. The statement read, “Assuming, outdoor prices quoted by CannabisBenchMarks.com’s Feb 3, 2023, outdoor spot price at $417 per pound, the equipment can process up to $208,500 of material per hour.”
“This is a key talent and asset acquisition that will expand our network of potential investors through the lead operations team we get as part of the deal,” said ECGI CEO, Danny Wong last week. “East West has extensive knowledge and proprietary technology/processes within the CBD & eastern medicine field, and we will gain a tremendous base of specialized equipment as well as key personnel that include leaders in the cannabinoid extraction and product manufacturing space.”
In addition to the equipment, the deal includes keeping key personnel, including Dr. Zhihong Zhou, Ph.D., the dean of extraction of Yunnan University, School of Traditional Chinese Medicine (TCM). Yunnan University is considered a top research facility of TCM in China, and perhaps the top TCM facility in the world. Stanley Zhang, an expert in cannabis extraction and processing, and Sam Lai, an engineer with a focus on liquid-to-liquid extraction of cannabis cannabinoids and manufacturing of finished goods, will also be joining ECGI as part of the acquisition deal.
